Credit Reports Should Not be Used for Employment Decisions

Check out MASSPIRG’s Testimony presented today before the Joint Committee on Consumer Protection. 

TO: Chairmen Thomas Kennedy and John Scibak and members of the Joint Committee on Consumer Protection and Professional Licensure

FR: Deirdre Cummings, Legislative Director of MASSPIRG

RE: Testimony on support of S.80, An Act Regulating Use of Credit Reports by Employers

January 28, 2014

My name is Deirdre Cummings and I am the legislative director for MASSPIRG. MASSPIRG is a 40 year old, state-wide non-profit, non-partisan, member-supported consumer advocacy organization. Thank you for the opportunity to testify today in favor of S.80, An act regulating use of credit reports by employers.

MASSPIRG strongly supports S.80, a bill to limit employers’ use of credit checks in employment decisions. The use of credit reports in employment is a growing practice. Despite many good reasons to avoid engaging in this practice, more than half of employers nationwide (60%) do so, a dramatic increase from only 19% in 1996.

The three nationwide consumer reporting agencies (NCRAs) – Equifax, TransUnion and Experian – collect, centralize and aggregate information about the credit and repayment records of consumers. They source this information from public databases – including court records, state and federal tax liens, and bankruptcy records – and from a wide variety of private actors, called “furnishers,” who forward consumer credit information to them voluntarily. The NCRAs then distribute the information to “users” – often companies providing financial products, from student loans to credit cards to mortgages – who use the information to evaluate consumers’ eligibility for financial services. Increasingly, as stated above, reports are also being used for employment and insurance purposes.

Credit reports should not be used in employment decisions for two primary reasons:

1.      Credit reports are full of mistakes. Government and industry reports all confirm that consumer credit reports are riddled with errors. Estimates of credit reports with serious errors vary widely, anywhere from 3 to 25 percent. A recent study, paid for by the Consumer Data Industry Association, the trade group for the bureaus, found potential errors in 19.2 percent of reports, and a 2013 report by the FTC found 20% of consumers had errors on at least one of their credit reports, many of them significant enough to result in alter their credit score. Even a 1 percent error translates into millions of consumers, since there are at least 200 million files at each of the bureaus.

Further, correcting errors in credit reports fixed has proven to be very difficult, time consuming and often unsuccessful.  An investigation by The Columbus Dispatch found that, of the people who filed complaints of inaccuracies with the Federal Trade Commission, more than half of them were unable to get the credit reporting bureaus to fix the error.

MASSPIRG released a report last year,  “Big Credit Bureaus, Big Mistakes: The CFPB’s Consumer Complaint Database Gets Real Results for Victims of Credit Reporting Errors,”  that analyze the complaints in the CFPB’s public Consumer Complaint Database, which accepts complaints relating to a variety of financial products and services. The CFPB has recorded over 10,000complaints about credit reporting since they started in October 2012 to September 2013.

2.      Credit history does not predict job performance. There is no evidence to show credit reports can predict job performance. A representative of TransUnion, one of the “Big 3″ credit bureaus, admitted under oath that “we don’t have any research to show any statistical correlation between what’s in somebody’s credit report and their job performance or their likelihood to commit fraud.”

Basing employment on such an unreliable tool is unfair and should not be allowed. Ten other states have passed laws restricting employers’ ability to run credit checks on applicants and employees. MASSPIRG urges this committee to do the same and pass S.80, An act regulating use of credit reports by employers.